Suggestions of retail property continuing to recover after pandemic

That is the verdict of Germany’s Union Investment, which published its latest Retail Attractiveness Index on Friday.

Compiled every six months, the index consists of two sentiment indicators and two data-based indicators. All four factors are weighted equally in the index. The index reflects consumer confidence as well as business retail confidence.

At 114 points the index has risen to its highest level since 2018.

Union Investment and data partner GfK said signs of recovery were present in Q1 2023 and gained in strength and breadth in Q2 2023. ‘This upward trend then continued in the majority of countries in the first quarter of 2024.’

As many as 9 out of 15 European retail markets included in the survey experienced growth over the year. The biggest rises were seen in the UK, where Landsec just said it is ready to start deploying again, Denmark and Poland, with 10 points each, and in Sweden, which added 8 points. Readings declined slightly in the Czech Republic (minus 4 points), Germany (minus 3 points), Austria (minus 2 points) and Finland (minus 1 point).

Consumer confidence increased in all 15 markets compared to the prior year, with significant double-digit increases in Poland, the UK and Southern European markets.

Markus Diers, Union Investment’s head of retail asset management, said sales were also encouraging. ‘These two factors boosted the EU-15 index to its highest level since 2018.’

In contrast, the mood among retailers (95 points) was almost unchanged despite higher sales. The labour market indicator (137 points) was likewise flat year-on-year.

Poland continues to top the country ranking in the EU-15 index with 137 points, an increase of 10 points compared to the previous year.

In second and third place are Portugal (118 points) and the Czech Republic (117 points). Joining the top group is Spain with 116 points, followed by Italy and France (115 points and 114 points respectively). Due to weak retail sentiment, Germany comes seventh in the current country ranking (112 points).

‘The improvement is a further indication of the turnaround in retail after the pandemic,’ said Andreas Löcher, head of investment management operational. However, we shouldn’t overlook the fact that polarisation of the retail market is continuing apace. Convenience and experience are clear winners of this trend, i.e. local shops on the one hand and best-in-class shopping on the other. Shopping destinations in excellent micro-locations that also benefit from tourism – such as ALEXA in Berlin and Palladium in Prague from our portfolio – remain compelling and will likely attract more investor capital. Outside these two crisis-resistant sub-segments, transformation efforts need to be stepped up in order to stay relevant.’

Europe v US v Asia 
While European retail markets have found their way out of the crisis, North American markets are underperforming. But it is the Asia-Pacific region in particular that continues to lag significantly behind Europe.

The North America index improved slightly by 3 points during the year and stood at an average of 99 points at the end of the first quarter of 2024, while the retail index in Asia-Pacific remained at a subdued 92 points. The gap to the EU retail index thus increased to 22 points.

The slight gain in North America was primarily driven by improved consumer sentiment (plus 15 points). The labour market, meanwhile, adversely impacted the index (minus 9 points). The retail index for Asia-Pacific showed a similar picture of improved consumer sentiment combined with a weak labour market.

The winners in the two overseas regions include South Korea (plus 5 points), the US (plus 3 points) and Japan (plus 2 points). Australia (minus 17 points) and Canada (minus 3 points) experienced the biggest decline over the year. The Canadian retail market is struggling and retained its bottom place in the GRAI’s global country ranking.

Union Investment’s Global Retail Attractiveness Index (GRAI) measures the attractiveness of retail markets across a total of 20 countries in Europe, North America and the Asia-Pacific region. An index value of 100 points represents average performance. The EU-15 index combines the indexes for the following EU countries, weighted according to their respective population size: Sweden, Finland, Denmark, Germany, France, Italy, Spain, Austria, the Netherlands, Belgium, Ireland, Portugal, Poland and the Czech Republic, plus the UK.